Earnings Aren't the Only Thing Moving the Dow

Earnings season opened last night, and Alcoa set the tone with an earnings beat that failed to produce a lasting bounce in the struggling stock. Still, the stock market doesn't seem to be too spooked by Alcoa's share price behavior, as most mainstream media sources credit Alcoa's fairly optimistic expectations for earnings this quarter for helping to push stocks up. As of 10:50 a.m. EDT, the Dow Jones Industrials (DJINDICES: ^DJI  ) are up 47 points, or 0.29%, while the broader market is up by a similar percentage.

Earnings are definitely important to keep an eye on in the weeks to come, especially for companies in sectors that have a big influence on the overall economy. The banking sector traditionally reports early, and investors will be watching big banks JPMorgan Chase (NYSE: JPM  ) and Bank of America (NYSE: BAC  ) to see how two offsetting trends will affect their earnings. On one hand, rising mortgage rates threaten to crush the revenue they raise from making loans to current and prospective homeowners, especially given that much of that revenue comes in the form of transaction-based fees. Yet a steepening yield curve also presents opportunities to big banks, as they can expand the amount of net interest income they reap by smartly choosing to extend loans that they're comfortable holding on their books. Yesterday's report that the FDIC will require higher amounts of capital could hamper loan volume growth, but the Dow's two banking stocks don't appear to be overly affected, with B of A up 0.4% and JPMorgan down a similar amount.

But other factors will continue to play key roles in the stock market's direction. Merger and acquisition activity has helped drive stocks upward, and this morning's announcement that Kroger (NYSE: KR  ) will buy regional supermarket chain Harris Teeter (UNKNOWN: HTSI.DL  ) sent shares of Kroger up 2.9%. The deal is somewhat unusual in that Kroger offered only a 2% premium over the closing price of Harris Teeter shares, which arguably raises the possibility of a higher competing bid. Still, consolidation in many industries, including not only grocery stores but also airlines and aerospace manufacturing, has helped produce more profitable and efficient businesses by putting them in a position where competition is less of a drag on earnings. Kroger can hope to reap such benefits by expanding its presence in Harris Teeter's Southeastern region.

Finally, be sure to keep looking at economic data and geopolitical issues not only in the U.S. but around the world. Even as earnings season progresses, keeping your eyes open for other news that could have an even bigger impact on long-term market prospects will help you react more quickly, potentially letting you take advantage of opportunities that others will miss out on.

JPMorgan and B of A raise impassioned responses from investors, with many remaining terrified of investing in big banking stocks after the crash. But the sector has one notable standout. In a sea of mismanaged and dangerous peers, it rises above as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.


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